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Should your employer be doing more when it comes to disability benefits?

When it comes to employer-provided benefits, there are certain areas in which employees will always take the time to conduct the necessary research to determine which option is best for them. By way of example, consider health insurance, which given its potential financial impact, will lead many employees to compare and contrast plan options, or debate taking such ancillary actions as making contributions to a health savings account.

In contrast, there are other employer-provided benefits to which employees devote relatively little time and effort researching. A good example of this is disability benefits, which are typically not assigned priority status by employees given that 1) they are provided free of charge and 2) have heretofore never been utilized in any capacity.

While this is understandable, it also leads employees to assume that their employer is doing everything right when it comes to the provision of disability benefits.

According to experts, however, this is frequently not the case, as many neglect to take otherwise simple steps that result in employees receiving insufficient coverage, meaning a less than desired replacement of income in the event of a long-term disability.

What then are some of the things that experts say employers can be doing to improve their disability policies?

Benefits and taxes: As stated above, most employers offer free disability coverage. While this appears desirable on the surface, the reality is that when premiums are paid by the employer, any disability benefits received by the employee are taxable. Consequently, experts indicate that employees might benefit more from being able to pay these premiums with after-tax dollars, as it would result in disability benefits being tax-free.

Retirement contributions: Most employees might not realize it, but in the event they are receiving disability benefits, they are not considered actively at work and, as a result, can’t make retirement contributions. Experts indicate that employers can take relatively simple steps to avoid this disservice, such as structuring a plan to divert retirement contributions to an employee-established trust.

Covered earnings: The majority of disability policies cover the base salaries of employees. While this is an acceptable arrangement for many, it is often to the detriment of those who derive their compensation from commissions, bonuses or other incentive-based pay. Given this reality, experts indicate employers should consider, where appropriate, modifying polices to instead cover “total compensation.”